Iran Bans Foreign Currency Trading On The Street

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January 16, 2012 4:09PM (UTC)

TEHRAN, Iran (AP) — Iran's central bank deputy governor said Monday that trading foreign currency outside of banks and licensed currency exchange operations was now banned, marking the government's latest attempt to stem an outflow of foreign currency amid worries over the state of the economy.

The latest U.S. sanctions targeting Iran's central bank have further stoked Iranians' concerns about an economy already grappling with double-digit inflation and the weight of earlier U.S., European and United Nations sanctions linked to a controversial nuclear program. The West says the program is aimed at developing weapons while Iran says it is for purely peaceful purposes.

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Shortly after the new U.S. sanctions were announced earlier in January, the rial lost about 13 percent of its value relative to the dollar before rebounding slightly. The sanctions have not yet gone into effect.

Overall, the rial has shed about 40 percent of its value against the dollar since December 2010.

Deputy Central Bank Gov. Ebrahim Darvishi said authorities were monitoring street vendors and currency trading operations, in what was the government's latest effort to shore up the currency which was being traded on the open market at rates differing from those set by the government. He said that any foreign exchange trade must come with a receipt or the funds would be confiscated.

"Do not take it to the market," Darvish said on state radio, referring to foreign currency such as the U.S. dollar. "Any investment in the field of foreign currency and the dollar is forbidden."

The ban — officially announced Sunday — comes as Iran looks to stem the outflow of foreign currency. The central bank said the move was aimed at curbing money laundering, with officials complaining that the exchange brokers were offering rates far removed from those set by the government.

On Monday, the U.S. dollar sold at 16,950 rials while the central bank had set the rate at 14,000 rials to the dollar.

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But it comes against a backdrop of economic woes as officials complain that there was too much liquidity in the market. Officials in Iran's chamber of commerce say there are more than $300 billion liquidity in the country.

Iranians, worried about the potential impact of the latest sanctions, have appeared focused on buying up dollars and gold coins instead of depositing money in the banks that are offering interest rates far lower than the inflation rate.

The sanctions have amplified those worries and also led to the government reducing from $2,000 to $1,000 the amount of dollars travelers can take with them as they leave the country.

The latest move appeared primarily aimed at curbing street trade of foreign currency, but it had a broader impact.

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While money changing shops open, they were largely reluctant to do any business, and most currency traders on the street abandoned their corners.

"The market is full of security agents," said Hassan Rahamani, one of the dealers, adding that there has been little business since Sunday.

The official IRNA news agency said Monday that dealers are doing business secretly while the semiofficial Fars news agency reported that more agents were to hit the streets.